Morris Robinson, of M Robinson and Company, PC, recently appeared on The Entrepreneur’s Guild with Thom Stimpel. In his appearance, Mr. Robinson, an attorney and CPA, discussed issues that entrepreneurs face at an international level. When approached by an individual who want to establish a business in the United States, Robinson outlines some of the initial steps and considerations.
At the outset, Robinson suggests working with an immigration attorney, to ensure that the individual or entity has the legal right to set up or purchase a business in the United States. Further, if purchasing a business, a business attorney should be engaged to ensure the business is free of encumbrances and liabilities. Finally, Robinson suggests consulting a CPA to ensure there is no undisclosed tax liability, that the financials presented about the business are accurate, and that the business is appropriately valued.
Robinson went on to discuss the types of available business entities that are typically established in the United States, and the tax implications of each particular entity. He first described the C-Corp, expressing its primary drawback as double taxation, one tax on earned income and another when the company liquidates (or pays dividends). He then described the S-Corp, which presents a single tax but has the drawback that an owner must be a US resident. Thus, the S-Corp is not an option for non-US residents and non-US citizens. Robinson described the third option, a Partnership, as the best one to allow single taxation and foreign ownership.
Of course, in addition to domestic tax issues associated with the entity, there are also international tax issues to consider. For instance, as Robinson describes, a foreign person who is in the United States on a Work Visa, once here 183 day, may incur additional tax liability if certain disclosure requirements are not met, including completion of disclosure forms to the country of origin, and forms submitted to the Internal Revenue Service regarding earned income and the valuation of assets. Robinson cautions that penalties for failure, even unintentional failure, to disclose can be extremely high, and thus international tax compliance is a significant issue about which entrepreneurs must be aware.
Despite the cautionary words, Robinson described the protections that were available to those who own a business outside their country of residence. As an example, he described the Earned Income Exclusion or Foreign Tax Credits that may allow a US citizen working abroad to exclude up to $100,000. Robinson suggested engaging a tax attorney to ensure an individual’s tax liability is minimized, as an effort to ensure tax liabilities are effectively managed and controlled.
For more information, or to hear Robinson’s entire interview on The Entrepreneur’s Guild, please click here.